Delay, Repeal, Replace

The Obamacare fight has just begun

James C. Capretta and Jeffrey H. Anderson

February 4, 2013, Vol. 18, No. 20

Watching Congress take the final steps to pass Obamacare in March 2010 was a bitterly disappointing moment for the law’s opponents. They didn’t have to be told that what was being rammed through the House and Senate was the largest power grab by the federal government in at least a generation, with immense consequences for the nation’s economic vitality and political health. Opponents understandably redoubled their efforts to see the law repealed and replaced, and Republicans rode the popular revolt against the excesses of Obamacare all the way to a landslide midterm victory.

Unfortunately, the two best opportunities to stop the law in its tracks were missed. At the Supreme Court, Chief Justice John Roberts twisted himself into a pretzel to conclude that the law’s centerpiece, the individual mandate, was constitutional (but only as a “tax”), and President Obama beat back the campaign of former Massachusetts governor Mitt Romney, securing a second term. As a consequence, outright repeal is off the table for at least four years.

Disappointing as these events were, they do not remotely constitute the end of the fight to repeal and replace Obamacare. Indeed, this is a fight conservatives couldn’t walk away from even if they wanted to, because health policy is absolutely central to the struggle over the size and scope of governmental power. If Obamacare remains on the books, the federal government will become the dominant actor in nearly one-fifth of the American economy, tens of millions more Americans will become dependent on taxpayer support for their health care, the quality of American medicine will decline, and the spending commitments in the law will increase the pressure for ever-higher taxes​—​even as they add to the risk of national insolvency.

So the fight must go on. The only question, at this point, is how to proceed.

Already, 25 of the 50 states have declared, as is their prerogative under the 2,700-page law, that they will refuse to set up Obamacare health-insurance exchanges. Another 7 states have said that they will administer some regulatory aspects of the exchanges but will leave the bulk of the work of determining eligibility for the new subsidies to the federal government. Only 18 states plus the District of Columbia are planning to take on the full responsibility for the administration of Obamacare.

Steadfast resistance by so many states is a welcome and important development. In addition to the signal that such resistance sends, Congress hasn’t authorized funding for the federally run Obamacare exchanges that would operate in place of state-based ones. Moreover, the plain language of the hastily cobbled-together law​—​which the administration is ignoring for the moment​—​says that taxpayer-financed subsidies can only be funneled through state-based exchanges, and not through federal ones. (Legal challenges are proceeding on this front.)

In addition to opting out of establishing the exchanges, states can also refuse to implement Obamacare’s massive expansion of Medicaid. The Supreme Court opened up this option by striking down the law’s onerous penalties on states that decline to raise the income cutoff for Medicaid eligibility by 33 percent, as Obamacare prescribes. Current Medicaid beneficiaries are all-too-frequently badly served by the program, so GOP governors are on firm ground when they argue that no expansion should take place without fundamental reforms. And if no reforms are forthcoming, then Obamacare’s coverage expansions will fall well short of what was promised.

Beyond these encouraging developments in the states, however, there are two proposals that Republicans should embrace in the early months of 2013 to help destabilize Obamacare and lay the foundation for its eventual replacement. First, congressional Republicans should push for a delay in Obamacare’s implementation. Second, the party should unite behind, and persuasively advance, a credible and practical replacement plan​—​for one cannot replace Obamacare without offering a replacement.

Obama will never willingly sign anything that delays the implementation of his namesake, so delaying its onset would almost certainly require pushing him into accepting a delay as part of larger budget negotiations. According to estimates produced by one of us and former Congressional Budget Office director Douglas Holtz-Eakin, simply delaying the implementation of Obamacare by two years (until January 2016) would cut deficits by about $200 billion.

This would be a popular pitch for Republicans to make to the American people: We will cut the deficit by $200 billion and will also keep you from having to live under Obamacare for another two years. That’s a win-win for the American people. As such, it’s a pitch congressional Republicans should make​—​and it’s a price its members should make Obama pay to get what he wants in the budget process.

Delaying the implementation of Obamacare would be important for three reasons: It would save hundreds of billions of dollars in federal spending. It would spare Americans from having their health care premiums spike until a somewhat later date. And it would move the onset of Obamacare much closer to the 2016 presidential election, which would put Obama’s centerpiece legislation at center stage in that race​—​as the future health of the nation demands that it be.

Of course, this is the last thing that Obama wants, but he may not have much choice in the matter. Once a possible delay gets floated by Republicans in Congress, it could gather momentum. Many governors, including some Democrats, are likely to support such a move because they see a train wreck coming in 2014 and are eager to avoid it. Moreover, many businesses, including insurers, would support a delay because they know the government is not remotely ready to implement Obamacare on schedule. Even a one-year delay would pay dividends in all of the ways listed above.

Beyond resisting and delaying the implementation of Obamacare, the most important thing for the GOP at this point is to develop and unite behind a practical replacement proposal​—​one that will actually solve the very real problems plaguing American health care. While Obamacare’s failings will undoubtedly further energize popular opposition in the years after its implementation, that opposition alone is unlikely to be strong enough to result in its full repeal in the absence of a plausible replacement. Americans want reform of some sort to address the issues of preexisting conditions, rapidly rising costs, and unstable and insecure insurance for tens of millions of their fellow citizens. Obamacare’s opponents can win this fight​—​but only if they’re willing to do the hard and often complex work of developing an alternative that offers solutions to these concerns without imposing Obamacare’s excessive costs and heavy-handed governmental controls.

A credible alternative to Obamacare must start with a plan to address the issue of preexisting conditions. As matters stand today, it is possible for families to stay continuously insured and yet, when moving from employer-provided insurance to the individual market, still face sky-high premiums because a child has a genetic condition or a spouse has battled cancer. That strikes most Americans as fundamentally unfair. Fixing this problem, however, does not require a full federal takeover of the health system. New regulations, recommended federally but implemented by the states, could give Americans new protections if they stay continuously insured. In practical terms, Americans should be able to move seamlessly between employer-based coverage and individually owned insurance without being subjected to high premiums based on the development of a costly health condition. Making this work will require additional funding from the federal government for state-based high-risk pools. As for those who haven’t remained continuously insured, a onetime buy-in could allow them to purchase insurance at below-market price, with high-risk funding being used to offset part of those costs.

Of course, to stay continuously insured, families need to have realistic and affordable options. This, in turn, requires fixing the unfairness in the tax code. Since World War II, the federal tax code has been heavily biased toward job-based insurance. As a result, those without access to employer plans have a very difficult time finding affordable insurance. In reforming the insurance market, Republicans should end the tax code’s discrimination against those outside of the employer-based system. There’s no reason why Americans who get their insurance through their employer should get a tax break, while those who buy it on the open market should not. To address this unfairness, a replacement to Obamacare should provide a tax credit to households that don’t have access to tax-subsidized, employer-based coverage. Such a credit should be equal to about $2,500 for individuals or $5,000 for families and could only be used to offset the costs of health insurance premiums or deposited into a health savings account. By adopting such reforms, Republicans would fix what the federal government broke, rather than giving it control of the entire health care system.

Such reforms would also reinforce a third element of a credible replacement program: a move away from open-ended health care subsidization by the federal government. These open-ended commitments by the government are fiscally unsustainable, and they are a central factor in driving up health costs. Instead of today’s open-ended subsidies, Republicans should champion an approach that substitutes fixed financial support for insurance​—​a “defined-contribution” model, if you will. Importantly, this would mean providing a fixed amount of support for purchasing health insurance, not a fixed amount for care. No one would be cut off after the cost of their care passed a certain cost threshold. Instead, each person would receive a fixed amount of federal financial support, perhaps adjusted to reflect health status or income, for use toward the purchase of health insurance of his or her choice.

The primary problem in American health care is that it operates without the discipline of a properly functioning marketplace. The federal government’s subsidies in Medicare and Medicaid, and its tax subsidies to employer plans, are open-ended and increase when costs rise. This undercuts the incentive for price-shopping and for judicious use of resources. To inject market discipline into health care, consumers must be cost-conscious. For instance, with a fixed federal tax credit for insurance, consumers would have strong incentives to purchase low-premium plans because any premium above the credit amount would come out of their pockets and not from taxpayers. Similar reforms are necessary in Medicare and Medicaid.

Such reforms are the key to promoting a genuine health care market in America. Some of this would cost money, to be sure, but it would be a pittance compared with Obamacare​—​and thus would save extraordinary sums in comparison to the cost of keeping that colossally expensive overhaul on the books. Moreover, much of the cost of the tax credits could be offset by capping the tax preference for employer-paid insurance at a level where it would fully cover the cost of an average plan but not of an expensive one.

If Republicans were to advance a replacement along these lines​—​a plan that would provide stable insurance options, consumer choice, and high-quality health care without the heavy-handed mandates and regulations of Obamacare​—​the American people would be more than happy to throw Obamacare overboard.

The key to turning back the singular threat that Obamacare poses to our liberty and fiscal solvency is for the GOP to have a plan of attack that extends across the next four or five years. Opponents of Obamacare (which still includes most Americans) should be vigorous in their opposition in the coming weeks and months. But those efforts should be focused on the end game of replacing Obamacare with something different and far better​—​and that will require winning the presidency. Therefore, the closer the initial ill-effects of Obamacare can be pushed toward 2016, the better the chances for replacement.

Even those Republicans who might otherwise be inclined to capitulate on this issue should realize that the fight is far from over and must be won. As Yuval Levin wrote in these pages shortly after President Obama broke enough arms to push Obamacare through Congress on a strictly partisan basis:

[Obamacare] is not even a liberal approach to escalating costs but a ticking time bomb: a scheme that will build up pressure in our private insurance system while offering no escape. . . . Once implemented fully, it would fairly quickly force a crisis that would require another significant reform. Liberals would seek to use that crisis, or the prospect of it, to move the system toward the approach they wanted in the first place.

In other words, Obamacare is a way station, and there are two possible destinations: It will be replaced either with a freer system that will lower costs and increase the quality of care, or else with fully socialized medicine of the kind that liberals have long desired. Obama himself, when he first began campaigning for national office in 2003, declared, “I happen to be a proponent of a ‘single-payer,’ universal health care program.” The only thing now standing between Americans and Obama’s goal is a strategic, savvy, and determined commitment by Obamacare’s opponents to replace it with real reform.

The fight won’t be easy, but opponents of Obamacare have some big advantages. As Obamacare begins to require that insurers cover all comers at the same price (regardless of their health status and hence the actual cost of their care), insurance premiums will skyrocket for large numbers of currently insured Americans. Many millions of others will lose their employer-based insurance (with some of them being dumped into Medicaid at taxpayer expense), and many millions of seniors will lose their Medicare Advantage plans. In direct contradiction to what President Obama repeatedly promised, Americans will soon realize two things: Obamacare will cause health costs to rise, not fall; and just because they like their health plans, that doesn’t mean they’ll get to keep them.

Since Obamacare will mandate that businesses with at least 50 workers provide insurance to all “full-time” employees​—​defined under the overhaul as those who work at least 30 hours a week​—​the 49-employee business and the 29-hour week will both become commonplace. Thus, the overhaul’s drag on the economy will become all the more apparent and undeniable. Furthermore, many businesses and charitable organizations will continue to fight Obamacare’s requirement compelling them to offer only those health plans that provide “free” access to contraception, sterilization, and the abortion drug ella, while many of their employees won’t appreciate having their choices limited solely to such Obama-approved plans.

Federal spending on Obamacare will start to rise rapidly. Obamacare’s myriad taxes will begin to kick in. Medicare spending will be cut, or else (if that is averted) deficits will rise even further. The combination of millions of newly insured patients and a worsening primary-care shortage will cause emergency rooms to become swamped. And, of course, American citizens will, for the first time in our history, be forced to buy a product of the federal government’s choosing​—​or else pay a noncompliance tax.

As a result, Obamacare will likely become even less popular than it is already, and Americans will likely be even more open to a credible replacement. If opponents are ready to present and fight for such a plan over the coming years, then the cloud of Obamacare’s adoption may yet come with a very attractive silver lining: the eventual adoption of a market-based, patient-centered, decentralized reform plan that delivers better care at lower cost to the American people​—​in harmony with the country’s founding principles. The battle to replace Obamacare will not be easy. But it’s unavoidable, and the benefits of an ultimate victory will be well worth the price.

James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute. Jeffrey H. Anderson is a senior fellow at the Pacific Research Institute and a frequent contributor to The Weekly Standard.